Fiscal cliff threatens California's recovery, jobs

SACRAMENTO -- California's economic recovery could come to a halt if Congress and President Barack Obama are unable to avert the "fiscal cliff," business and government officials warned Friday.

Robert Kleinhenz, chief economist at the Los Angeles County Economic Development Corp., said automatic spending cuts would represent a loss of $22.7 billion in gross state product, the annual measure of goods and services produced in the state.

It would also mean the loss of 225,000 jobs statewide, he said.

Southern California would be especially hard-hit because the region is a large recipient of defense spending, particularly for early-stage military research, Kleinhenz said.

Expiring Bush-era tax cuts and the end of a payroll tax holiday will also mean smaller paychecks for workers at a time when the nation is barely recovering from the Great Recession.

"This is a timing problem. If the Congress can work out the timing, maybe space out some of these adjustments over the next couple of years, than we would not endanger this recovery," Kleinhenz said.

Another group that would feel the pinch at the start of 2013 is the unemployed.

About 400,000 jobless Californians who have been receiving unemployment benefit extensions will stop receiving checks at the end of the year unless Washington acts, according to Loree Levy, a spokeswoman for the state Employment Development Department. The federal government has paid $40 billion in federal extension benefits in California since July 2008, she said.

Levy said the state mailed out roughly 360,000 letters over Thanksgiving week telling people how they can find other forms of assistance, such as food stamps and social services. The average person receives $300 a week in unemployment assistance.

"We're making people well aware so they have time to plan accordingly," she said Thursday.

The nonpartisan Legislative Analyst's Office has already warned that the state could lose as much as $11 billion in tax revenue if the nation fell back into recession. That would wipe out the bulk of tax gains under Proposition 30, a set of temporary sales and income taxes hikes voters approved last month.

Reduced federal funding and a lagging economy would send shockwaves throughout a state that was projecting budget surpluses for the first time in a decade.

Brown's finance spokesman, H.D. Palmer, said the administration has not conducted its own estimate and suggested that state programs would not feel an immediate impact. But schools, public safety and other services would once again feel budget strains by mid-2013.

In a sign of California's vulnerability, the State Controller's Office released a monthly cash update Friday showing revenues were nearly 11 percent below the state's projections, or $807 million less than forecast. The state's unemployment rate remains in the double digits at 10.1 percent.

"Given the years of state budget constraints that have already passed, there are few simple or easy budget options to address a near term shortfall of that magnitude," said Deputy Legislative Analyst Jason Sisney.